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U.S. Trade Deficit Shrinks in June

The June trade deficit shrank to $42.9 billion from the revised $48.0 billion in May, the Department of Commerce reported today. The drop was much larger than most analysts had predicted.

June exports increased $1.7 billion from May to $185.0 billion. Imports were $227.9 billion, a decrease of $3.5 billion from May.

While a drop in petroleum prices was expected to bring imports down, noted Michael Dolega, an economist with TD Economics, "The unexpected part was the increase in exports, with the European trade balance improving on increased exports and decreased imports. However, Europe-bound exports are likely to remain under pressure as the region appears to have entered a shallow recession and the greenback continues to appreciate – with the currency gaining 2.1% vis-à-vis the euro and 1.4% in broad trade-weighted terms in June following strong gains in the previous month."

The May to June decrease in goods imported into the United States was led by industrial supplies and materials ($2.3 billion); capital goods ($1.3 billion); and automotive vehicles, parts and engines ($2.0 billion).

Exports of advanced technology products were $26.5 billion, an increase of $1.8 billion from May. However, imports were $33.7 billion, a slight increase from May.

U.S. Business and Industry Council Research Fellow Alan Tonelson warned that despite the lower overall deficit, "the manufacturing-dominated U.S. merchandise deficit with [China] actually increased in June – by 5.21% – from $26.04 billion to $27.40 billion. Even worse, U.S. merchandise exports to China sank by 4.27% – from $8.90 billion to $8.52 billion."

"Slower growth in China has hurt our exports, but so has the fact that China's currency has lost value this year," said Scott Paul, executive director of the Alliance for American Manufacturing. "It's clear we need a bolder strategy with China on its currency and subsidies, which are significant threats to the jobs recovery we have seen in manufacturing."

From June 2011 compared to June 2012, the U.S. trade deficit decreased $7.4 billion. Exports were up $12.3 billion, while imports increased $4.9 billion.